Estrella Bryant was at risk of losing her San Francisco town house last year.
Bryant, 70, had not fallen behind on her mortgage payments. Instead, she owed $560 in dues to the Parkview Heights Homeowners Association. The association turned over the case to a collection agency and threatened to foreclose unless Bryant paid off her debt, which increased tenfold because of fees and interest.
“It’s been a nightmare,” said Bryant, a Filipina immigrant who lives on Social Security and occasional bookkeeping jobs. She said she repeatedly asked Parkview Heights representatives why she was dealing with a debt collector instead of the association.
“Aren’t you supposed to help homeowners?” she asked.
With the help of a lawyer, Bryant worked out a payment plan and saved her home. But her ordeal reveals another dimension to the foreclosure crisis, in which homeowners associations nationwide have the same powers as banks and mortgage lenders, and they can exercise a little-known right to foreclose on homes. California law permits associations to initiate foreclosure proceedings when a debt exceeds $1,800, or if a lower amount of dues is owed for more than one year.
One out of every four California homeowners belongs to a homeowners association — entities that sell property and provide services in residential subdivisions with support from member dues. There are more than 15,000 associations in Northern California, according to Levy, Erlanger & Company, a professional services firm that caters to them.
Last year, associations foreclosed on about 300 Bay Area homes — twice as many as five years ago, according to an analysis by New America Media, a nonprofit news organization. The study used data from ForeclosureRadar.com, an independent Web site.
Association-initiated foreclosures are still a small fraction of the overall total in the Bay Area and elsewhere. But advocates for housing rights said the problem ran much deeper, as associations used the threat of foreclosure to intensify pressure on troubled homeowners. The associations often work with debt collectors who add fees and collection costs, causing the debt to skyrocket.
“People come up with money through a painful process; their home is being held hostage and the debt collector knows it,” said Marjorie Murray, who directs the Center for California Homeowner Association Law, an Oakland advocacy group.
Last week, the California Senate Judiciary Committee passed a bill to curtail predatory practices by collection agencies that can lead to ballooning debt and foreclosure proceedings. It would close a loophole that enables collection agencies to apply payments to their own fees and collection costs before paying down the original debt to homeowners associations. Current law forbids this, but debt collectors exploit vagueness in it to get homeowners to waive their rights.
Senator Ellen M. Corbett, Democrat of San Leandro, who co-sponsored the bill with the Center for California Homeowner Association Law, said the legislation was designed to give struggling homeowners a chance to catch up on payments to homeowners associations.
“Unscrupulous debt collectors are increasing the amount owed based on penalties and fees, and foreclosing on people’s homes,” Corbett said in an interview. “It’s a terrible practice. The penalties are just way too harsh.”
But Bay Area homeowners associations say they are feeling the same squeeze as the homeowners. Ken Johnson, president of the Eden Shores Homeowners Association in Hayward, said most homeowner associations were run by volunteers, who have neither the time nor the expertise to chase down delinquent homeowners.
Johnson said roughly half of his development’s 500 tract homes are in some stage of foreclosure, primarily because of mortgage defaults. Many of those homeowners are also delinquent on their assessments, he said. That means Eden Shores has less money to provide services, including maintenance of common areas like streets, swimming pools and parks.
Johnson said associations were not interested in taking over distressed properties.
“They don’t want to be liable for it; they just want the funds,” he said.
Andrew Fortin, a spokesman for the Community Associations Institute, an organization that supports homeowners associations nationwide, said the ability to collect dues was essential to ensure that associations were able to provide crucial services.
“You can understand why an association would want to be on top of collecting assessments, or everyone’s property value becomes zero,” Fortin said.
For homeowners, however, that process can be painful.
Bryant said she got into trouble when her bookkeeping assignments started to dwindle in the depressed economy. She began to pay her assessments every other month and fell two months behind. She said she had no idea her home was at risk until she received a notice from a collection agency.
By then, the agency, Association Lien Services, had applied an additional $1,000 in fees, documents show. To stave off foreclosure, Bryant said, she was desperate to work out a payment plan, but the agency’s offer required her to sign an agreement to allow her payments to go toward collection costs before being applied to her delinquent dues, circumventing a state law requiring that payments go toward the original debt before being applied to fees.
Instead of signing the document, Bryant obtained a pro bono lawyer. She recently paid the full amount she owed the association and worked out a deal to pay a fifth of the nearly $2,500 in collection costs.
Jane Fay, president of the Parkview Heights Homeowners Association, said that she sympathized with Bryant but that she believed the board acted responsibly in trying to collect the overdue assessments.
She did not agree with all of her debt collector’s practices, Fay said, but homeowners associations have few options besides pursuing the debt. Delinquents must shoulder part of the blame, she said.
“You’re an adult,” she said. “You haven’t paid, and you know you haven’t paid. There are repercussions.”
Fay said she was named president of the association in the middle of Bryant’s dispute and did not have enough information to know “right or wrong.” She said the association waived some late charges and interest.
“We don’t want the association to be making money off of homeowners who are in dire financial straits,” Fay said.
For collection agencies, however, the foreclosure process can be profitable.
David Swedelson is managing partner of Swedelson & Gottlieb, a Southern California law firm that operates Association Lien Services. Mr. Swedelson said homeowners associations contracted with collection agencies because the latter could cut through “government red tape and requirements” and resolve cases “a lot faster.”
Swedelson’s law firm boasts on its Web site that it can collect delinquent assessments, costs and fees in “90 percent of cases,” and said it believed that “foreclosure is the fastest and most effective way to collect overdue assessments.”
To see video and read more about homeowners in the Bay Area who were reported to debt collectors by their homeowners associations, click here.
Irma Herrera and Suzanne Manneh contributed reporting.
This story is a project of New America Media's investigative affairs reporting.